Financial sanctions: how to comply

These firms had previously indicated that they did not or may not have customer due diligence (CDD) procedures that include sanctions check.

Points to note from this:

1. compliance with the sanctions regime is about not breaching sanctions – not about having procedures
2. CDD procedures are only required if the matter is regulated by the MLRs
3. there is currently no requirement in law for a firm to have a sanction risk assessment 
4. there is currently no requirement in law for a firm to carry out sanctions checks – regardless of the risk of being exposed to them
5. there is currently no requirement in law to screen counter-parties (the SRA guidance is a “should”) 
6. there is very little evidence that solicitors are breaching sanctions – wittingly or unwittingly!

Assessing your sanctions risk

However, best practice is that firms should carry out a sanctions risk assessment.

A breach of the sanctions regime is strict liability and isn’t risk based like anti-money laundering and counter-terrorism financing compliance.

If there is a breach, you will be held to account.

Screening can absolutely keep you safer from that risk (it’s not 100% though!)

It is important for each firm to determine their level of risk and follow their risk appetite for the response. It’s not one size fits all because not all the firms are the same.

If you’ve received a letter from the SRA, don’t think the automatic solution is to load up with new policies and procedures.

Take a breath and look at your practice, determine your exposure and work forward from there.

This absolutely might mean that you will want to carry out CDD and sanctions screening. 

Next steps

The Law Society continues to be concerned about non-legislative obligations being placed on an already stretched profession where there isn’t strong evidence of non-compliance or indeed risk.

If there is a legitimate evidence-based need for legal professionals to undertake a certain course of action, then there are appropriate channels with necessary governance, scrutiny and proportionality ensuring necessary practitioners’ input.

We continue to work closely with the SRA, which has confirmed the letter is purely advisory and is not part of a wider enforcement programme.